Describe the Major Tools and Criteria for Decision Making -What Is the Average Payoff for the 3-Year ARM?
A)

question 49

Multiple Choice

Describe the major tools and criteria for decision making. Use the information below to answer the following question(s) . Below is a payoff table that lists four mortgage options: $$\begin{array} { | l | l | l | l | } \hline &{ \text { Outcome } } \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 5-year ARM } & \$ 55,895 & \$ 50,894 & \$ 48,134 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}$$
-What is the average payoff for the 3-year ARM?

• A) $ 52,792
• B) $ 45,212
• C) $ 51,094
• D) $ 55,278

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Definitions:

Diseconomies Of Scale

refers to a situation where, as a company or business expands, its production costs increase, leading to a decrease in efficiency.

Resource Endowments

The natural resources, capital, and other economic assets that a country possesses, impacting its economic potential.

World Price

The international market price of a good or service, determined through global supply and demand interactions.

Diminishing Returns

The principle that if one factor of production is increased while others remain constant, the overall returns will eventually decrease after reaching an optimal level.